When savings rates change, is it time to switch banks?

Red and purple

So we all now know to not keep our savings in a big bank, or other entity that clearly doesn’t care about keeping your business.

But what if you’ve already done this? What if you have your savings accounts in an interest producing account? Can you optimize further?

One of the online savings accounts I’ve been using has been on a little bit of a tear recently, upping its rate every few weeks. I just got this email, which is I think the third or fourth I’ve gotten from them this year:

Ally rate increase
Sweet, thanks.

All of this means that it’s a good time to ask yourself: is it time to switch the account where your savings are held?

Online savings accounts are the best

These days, you will get the best savings account rate by using an “online” savings account. This is a bank that often contains no branches and so exists online only. Not having that footprint gives them the flexibility to offer higher rates to you.

Nerdwallet is a good resource for seeing what is out there right now. Here is the current ranking.

Now, you want to shop around for a savings account not just based on rate, but also on the flexibility that you need, and ease of transfer, and the company itself. Some random company you’ve never heard of may offer a good rate, but are they going to be around for a while? Read the reviews.

When I first signed up for an online savings account, I went with ING Direct, which seemed to be a kind of pioneer in the field. A few years ago, they sold their assets to Capital One, so I now have some accounts there. I also signed up for Ally Bank, and have been pleased with them.

Rate chasing

What if you already have an account that offers a good rate, but another bank offers a better rate?

Here, the answer is more nuanced, and involves understanding both your current provider and the one you want to move to. Which is going to provide the best long-term outcome?

Let’s also note that rate chasing isn’t the most efficient strategy. If you have one account that pays 1% and another that pays 2%, and you have $10,000 in savings, the difference between holding that money in one account versus the other is $100 over the course of a year. Which okay, I’d like an extra $100 too, but often the difference isn’t even that stark. (A 0.50% difference on $2,000 is only $10.)

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And let’s also realize that one company might have a higher rate now, but another company may swoop in and have a higher rate later. So even if the spread is wide, it might not always be that way.

About the only tactic you can take is to try to determine through research whether this account is a product that the bank is looking to have remain competitive. With a regular big bank, it’s easy to see that they don’t care, but with others, that’s a little harder, though again, read the reviews.

My situation

Here’s my situation. I currently have some accounts with Capital One and a few other accounts with Ally Bank. And while Ally seems to increase my savings rate every few weeks (see above), it’s been pretty mum from Capital One, which is still stuck down at 1.00%.

And in fact, an independent analysis states that this might not be unintentional, that Capital One might just be focusing on making some of its other products move enticing.

So there are a few strikes against Capital One right now:

  • A lower rate
  • A sense that the company isn’t planning to change that
  • I’m an unintentional customer (I never signed up, but got moved there when ING exited the U.S. market)
  • No special love for Capital One the company

That said, there are a few points for keeping things as they are:

  • The rate isn’t that different elsewhere
  • Moving money between accounts takes effort
  • Rates can always change one way or the other
  • Having a diversified savings plan (multiple vendors) can be advantageous

So I’m torn right now. I’m leaning toward moving everything over to Ally, but not convinced yet.

Look for a track record and a plan

In general, if you’re looking to up your rate by switching savings accounts, look for a track record. If another vendor has been consistently higher performing over the course of at least a year, then it might make sense to switch. But I wouldn’t switch very often, maybe once or twice a decade or so. The money isn’t worth it.

The purpose is to be able to get at the money, not high returns. We have other funds for that.

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